Question

1. Lew Walters wishes to become a millionaire. His money market fund has a balance of $66,743 and has a guaranteed interest rate of 10%. How many years must Lew leave that balance in the fund in order to get his desired $875,000?

2. Assume that Bob Hill desires to accumulate $875,000 in 15 years using her money market fund balance of $209,468. At what interest rate must Bob's investment compound annually? (Round answer to 0 decimal places, e.g. 8%.)

3. What would you pay for a $170,000 debenture bond that matures in 15 years and pays $8,500 a year in interest if you wanted to earn a yield of: 3%: 4%: 5%:

4. What is the future value of $7,560 at the end of 5 periods at 8% compounded interest? (Round factor values to 5 decimal places, e.g. 1.25342 and final answer to 0 decimal places, e.g.497,782)

5. What is the present value of $7,560 due 8 periods hence, discounted at 6%? (Round factor values to 5 decimal places, e.g. 1.253420 and final answer to 0 decimal places, e.g. 497,782.)

6. What is the future value of 17 periodic payments of $7,560 each made at the end of each period and compounded at 10%? (Round factor values to 5 decimal places, e.g. 1.25342 and final answer to 0 decimal places, e.g. 497,782.)

7. What is the present value of $7,560 to be received at the end of each of 17 periods, discounted at 5% compound interest? (Round factor values to 5 decimal places, e.g. 1.253420 and final answer to 0 decimal places, e.g. 497,782.)

8. Bluehouse Company issued $396,000 of 10%, 20-year bonds on January 1, 2020, at 102. Interest is payable semiannually on July 1 and January 1. Bluehouse Company uses the effective-interest method of amortization for bond premium or discount. Assume an effective yield of 9.7705%. Prepare the journal entries to record the following. (Round intermediate calculations to 6 decimal places, e.g. 1.253420 and final answer to 0 decimal places, e.g. 78,547. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

(a) The issuance of the bonds.

(b) The payment of interest and related amortization on July 1, 2020.

(c) The accrual of interest and the related amortization on December 31, 2020.

9. On January 1, 2020, Shoreline Company sold 12% bonds having a maturity value of $700,000 for $811,794, which provides the bondholders with a 8% yield. The bonds are dated January 1, 2020, and mature January 1, 2025, with interest payable December 31 of each year. Shoreline Company allocates interest and unamortized discount or premium on the effective-interest basis.

Prepare the journal entry at the date of the bond issuance. (Round answer to 0 decimal places, e.g. 79,547 If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare a schedule of interest expense and bond amortization for 2020–2022. (Round answer to 0 decimal places, e.g. 79,547.)

Prepare the journal entry to record the interest payment and the amortization for 2020. (Round answer to 0 decimal places, e.g. 79,547. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Prepare the journal entry to record the interest payment and the amortization for 2022. (Round answer to 0 decimal places, e.g. 79,547. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Dear Student,

As per the HOMEWORKLIB POLICY, only the first four questions should be answered. Kindly take note of it.

Part 1

Future value = Present value * (1+r)^n

875000 = 66743*(1.10)^n

(1.10)^n = 875000/66743

(1.10)^n = 13.10999

Therefore,

N= 27 years (using table, Future value of $1 @10%, the FV factor 13.10999 corresponds to 27 years)

Part 2

Future value = Present value * (1+r)^n

875000 = 209468*(1+R)^15

(1+R)^15= 875000/209468

(1+R)^15 = 4.17725

(1+R) = 4.17725^(1/15)

(1+R)= 1.10

R = 0.10

R = 10%

Part 3

Yield = 3%

Price of bond = present value of interest + present value of principal

Present value of interest = interest * PVIFA

Present value of principal = face value * PVF

Price of bond = (8500*11.93794)+(170000*0.64186) = 101472+109116 = $210588

Yield = 4%

Price of bond = (8500*11.11839)+(170000*0.55526) = 94506+94394 = $188900

Yield = 5%

Price of bond = (8500*10.37966)+(170000*0.48102) = 81773+88227 = $170000

Part 4

Future value = PV * FVF = 7560*1.46933 = $11108